Transcript
1Annual Report 2009
Introduction to the Company
Dialog Telekom PLC (The Company/Dialog Telekom/Dialog) operates Sri Lankas largest and fastest growing
mobile telecommunications network - Dialog Mobile. The Company is also one of the largest listed companies
on the Colombo Stock Exchange in terms of market capitalisation (valued at Rs. 57 Bn. as at 24th February
2010).
Dialog Telekom PLC is a subsidiary of Axiata Group Berhad (Axiata). Dialog has spearheaded the mobile
industry in Sri Lanka since the late 90s, propelling it to a level of technology on par with the developed world.
The Company operates 2.5G, 3G and 3.5G mobile services, supporting the very latest in multimedia and mobile
internet services as well as international roaming across over 200 countries. Dialog Telekom accounts for more
than 50 per cent of Sri Lankas mobile subscribers.
In addition to its core business of mobile telephony, the Company operates a wide portfolio of international
telecommunication services, including but not limited to retail and wholesale international voice and data
services, based on cutting edge International Gateway Infrastructure. Dialog Global, the international arm of
Dialog Telekom, provides state-of-the-art gateway facilities through partnerships with Tier-1 international
carriers. Dialog Broadband Networks (Private) Limited (DBN) is a fully owned subsidiary of the Company and
is a key player in Sri Lankas ICT infrastructure sector, providing backbone and transmission infrastructure
facilities and data communication services. DBN also operates a fixed wireless telephony service based on
CDMA technology. DBN was also the first service provider in Sri Lanka to introduce high-speed broadband
internet services based on WiMAX technology.
Dialog Television (Private) Limited (Dialog TV), a subsidiary of Dialog Telekom PLC, operates Dialog Satellite
TV, a Direct to Home (DTH) Digital Satellite TV service. Dialog TV supports a broad array of international and
local content including CNN, BBC, HBO, Cinemax, AXN, ESPN, Ten Sports, Discovery Channel, MTV (Music
Television) and Cartoon Network alongside a wide portfolio of Sri Lankan television channels.
NOTE: The Company and its subsidiaries DBN and Dialog TV will hereinafter be collectively referred to as the Dialog Telekom Group.
2 Annual Report 2009
Our VisionTo be the undisputed leader in the provision of
multi-sensory connectivity resulting always, in the
empowerment and enrichment of Sri Lankan lives
and enterprises.
Our MissionTo lead in the provision of technology-enabled
connectivity touching multiple human sensors
and faculties, through committed adherence to
customer-driven, responsive and flexible business
processes, and through the delivery of quality service
and leading edge technology unparalleled by any
other, spurred by an empowered set of dedicated
individuals who are driven by an irrepressible desire
to work as one towards a common goal in the truest
sense of team spirit.
3Annual Report 2009
Contents
Introduction to the Company 01
Our Vision & Mission 02
Contents 03
Corporate Values 04
Corporate Information 05
Board of Directors 06
Profile of Board of Directors 07
Group Senior Management 11
Message from the Chairman 13
Group Chief Executives Review of Operations 15
Business & Financial Review 21
Corporate Responsibility 37
Corporate Governance 40
Report of the Board Audit Committee 47
Shareholder Information 49
Financial Statements 53
US Dollar Financial Statements 106
Group Value Added Statements 108
Five Year Summary 109
Economic Overview 110
Notice of Annual General Meeting 112
Form of Proxy 113
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Corporate Values Total commitment to our customers
Dynamic and human-centred leadership
Commitment to task & excellence
Uncompromising integrity
Professionalism and accountability
Teamwork
Foremost respect for concern & care
5Annual Report 2009
Corporate Information
NAME OF COMPANY
Dialog Telekom PLC
COMPANY REGISTRATION NO. PQ 38
REGISTERED ADDRESS
475, Union Place Colombo 02 Sri Lanka Telephone : +94 777 678700 Website : www.dialog.lk
LEGAL FORM
A public quoted company with limited liability. Incorporated as a private limited liability company on 27 August 1993 and subsequently converted to a public limited liability company on 26 May 2005. Listed on the Colombo Stock Exchange in July 2005.
STOCK EXCHANGE LISTING
Ordinary Shares of the Company listed on the Colombo Stock Exchange of Sri Lanka.
BOARD OF DIRECTORS
Datuk Azzat Kamaludin - ChairmanDr. Hans Wijayasuriya Group Chief Executive Mr. Moksevi PrelisDato Yusof Annuar Yaacob Mr. Mohamed MuhsinMr. Jayantha DhanapalaMr. Azwan Khan Osman KhanMr. Roni Lihawa Abdul Wahab
BOARD AUDIT COMMITTEE
Mr. Moksevi Prelis - ChairmanDato Yusof Annuar YaacobMr. Mohamed Muhsin Mr. Jayantha DhanapalaMr. Azwan Khan Osman Khan
NOMINATING & REMUNERATION COMMITTEE
Dato Yusof Annuar Yaacob - ChairmanMr. Moksevi PrelisMr. Mohamed Muhsin
COMPANY SECRETARY
Mrs. Anoja J. Obeyesekere Resigned w.e.f. 31 December 2009
Ms. Viranthi Attygalle Appointed w.e.f. 1 January 2010
AUDITORS
Messrs. PricewaterhouseCoopers Chartered Accountants100, Braybrooke PlaceColombo 02, Sri Lanka
BANKERS
Bank of Ceylon Citibank N.A. Commercial Bank of Ceylon PLCDeutsche Bank AGDFCC Vardhana Bank LtdHatton National Bank PLCHongkong and Shanghai Banking Corporation LtdNational Savings BankNations Trust Bank PLCNDB Bank PLCPan Asia Banking Corporation PLCPeoples BankPublic Bank BerhadSampath Bank PLCSeylan Bank PLCStandard Chartered Bank LtdUnion Bank of Colombo Ltd
SHAREHOLDER SERVICES
Group Corporate Services
Dialog Telekom PLC
3rd Floor, 57, Dharmapala Mawatha, Colombo 3
Telephone : +94 773 908 929, +94 777 081 471
Fax : +94 117 694 350
E-mail : cosecunit@dialog.lk
INVESTOR RELATIONS
Telephone : +94 777 081304
E-mail :ir@dialog.lk
CONTACT FOR MEDIA
Group Corporate Communications
Telephone : +94 777 080 331
E-mail : corporate.communications@dialog.lk
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Board of DirectorsSeated Left to Right:
Dr. Hans Wijayasuriya
(Group Chief Executive)
Datuk Azzat Kamaludin
(Chairman)
Mr. Moksevi Prelis
Standing Left to Right:
Mr. Jayantha Dhanapala
Mrs. Anoja Obeyesekere
(Company Secretary)
Dato Yusof Annuar Yaacob
Mr. Roni Lihawa Abdul Wahab
Mr. Mohamed Muhsin
Mr. Azwan Khan Osman Khan
7Annual Report 2009
Profile of Board of Directors
Datuk Azzat Kamaludin
Chairman / Non-Executive, Non-Independent Director
Datuk Azzat Kamaludin was appointed to the Board of Dialog Telekom as
Chairman and Director on 21 July 2008.
He is an Independent Non-Executive Director of Axiata. Datuk Azzat
Kamaludin is a lawyer by profession and is a partner of the law firm of Azzat
& Izzat, Malaysia.
Datuk Azzat Kamaludin graduated from the University of Cambridge, United
Kingdom, with degrees in Law and in International Law and was admitted
as a Barrister-at-Law of the Middle Temple, London in 1970. Prior to being
admitted as an advocate and solicitor of the High Court of Malaya in 1979,
he served as an administrative and diplomatic officer with the Ministry of
Foreign Affairs, Malaysia from 1970 to 1979.
Datuk Azzat Kamaludin is presently a director of several public listed and
private limited companies in Malaysia. He has also served as a member of the
Securities Commission, Malaysia from 1993 to 1999.
Dr. Hans Wijayasuriya
Group Chief Executive / Non-Independent, Executive Director
Dr. Hans Wijayasuriya was appointed to the Board of Dialog Telekom on
19 January 2001.
Dr. Wijayasuriya joined the Company in 1994 as a member of the founding management team of the Company, and has functioned in the capacity of the Chief Executive of Dialog Telekom, since 1997. He counts over 16 years experience in technology related business management. In addition to his role as the Group Chief Executive of Dialog Telekom, Dr. Wijayasuriya also carries regional responsibilities as the Group Chief Operating Officer of Axiata. He also serves on the boards of several international subsidiaries of the Axiata Group.
A Fellow of the Institute of Engineering Technology of the UK (IET), Dr. Wijayasuriya is a Chartered Professional Engineer and also a member of the Institution of Electrical and Electronic Engineers (IEEE), USA. Dr. Wijayasuriya graduated with a degree in Electrical and Electronic Engineering from the University of Cambridge, UK in 1989. He subsequently read for and was awarded a PhD in Digital Mobile Communications at the University of Bristol, UK. Dr. Wijayasuriya also holds a Masters in Business
Administration from the University of Warwick, UK.
Dr. Wijayasuriya is a past Chairman of GSM Asia Pacific the regional interest group of the GSM Association representing 49 Asia Pacific member countries, and has earned the distinction of being included in the GSM 100 Role of Honour for his contribution to GSM in the Asia Pacific Region.
Dr. Wijayasuriya was a recipient of the CIMA - Janashakthi Business Leader
of the Year award in its inaugural year of presentation in 2003 and of the
coveted Sri Lankan of the Year award in 2008 presented by Sri Lankas
premier business journal the LMD.
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Mr. Moksevi Prelis
Independent, Non-Executive Director
Mr. Prelis was appointed to the Board of Dialog Telekom on 15 September
2004.
He has 27 years experience in the banking sector out of which 21 years was in
the capacity of CEO/Director of the DFCC Bank and the Nations Trust Bank.
Prior to this he has worked for 16 years as an Engineer and a Manager in
the automobile manufacturing and steel industries. He has held the posts of
Chairman Ceylon Electricity Board, Chairman National Institute of Business
Management, Chairman Association of Development Finance Institutions
of Asia & Pacific, headquartered in Manila and Chairman St. Johns National
Association of Sri Lanka. He has served as a Director on the boards of 20
companies and five state institutions. He is currently the Chairman of the
Capital Trust Securities Group and a member of the Presidential Task Force
on IT and English.
He holds a Bachelors degree with Honours in Mechanical Engineering from
the University of Ceylon and a Masters degree in Industrial Engineering
and Management from Purdue University USA, a Postgraduate Certificate
in Industrial Administration from Aston University Birmingham and has
completed the International Senior Management Programme of the
Harvard Business School, USA. He is a Chartered Engineer of UK, a Fellow
of the Institution of Engineers Sri Lanka, a (Hon) Member of the Institute of
Personnel Management and a (Hon) Fellow of the Institute of Bankers, Sri Lanka.
Dato Yusof Annuar Yaacob
Non-Independent, Non-Executive Director
Dato Yusof Annuar was appointed to the Board of Dialog Telekom on
9 September 2005.
Dato Yusof Annuar is a Chartered Accountant by profession. He completed
his Chartered Institute of Management Accountants professional examination
in 1987. He has had investment banking, corporate management and
telecommunication experience throughout his career.
He is an Executive Director and the Group Chief Financial Officer of Axiata.
He was the Chief Executive Officer of TM International Sdn Bhd from June
2005 till March 2008. He presently serves as a member of the Board of
several public listed international subsidiaries of the Axiata Group, which
includes PT Excelcomindo Pratama Tbk. (Indonesia) and MobileOne Ltd
(Singapore).
Profile of Board of Directors
9Annual Report 2009
Profile of Board of Directors
Mr. Mohamed Muhsin
Independent, Non-Executive Director
Mr. Muhsin was appointed to the Board of Dialog Telekom on 14 June 2006.
Mr. Muhsins experience includes working as a Strategic Management
Consultant and Director on international corporate and foundation Boards.
Prior to his retirement as the Vice President & Chief Information Officer at the
World Bank, Mr. Muhsin was responsible for aligning information technology
with the organisations business strategy. He successfully implemented major
reforms in global telecommunications, video conferencing, information
management and enterprise business systems.
A Chartered Accountant and a Fellow of the Institute of Chartered
Accountants of Sri Lanka, Mr. Muhsin also worked in senior positions in
the private sector in Sri Lanka and served for several years as an advisor
to the then President of Zambia, Dr. Kenneth Kaunda on state enterprise
reform and as the Group Financial Director of Zambias Mining and Industrial
conglomerate.
Mr. Jayantha Dhanapala
Independent, Non-Executive Director
Mr. Dhanapala was appointed to the Board of Dialog Telekom on 3 August
2007.
He was a career diplomat in the Sri Lanka Foreign Service and the United
Nations (UN). He was the Ambassador of Sri Lanka and the Permanent
Representative to the UN in Geneva (1984-87), the Ambassador of Sri Lanka
to the USA (1995-97) and UN Under-Secretary-General (1998-2003). He
is the current President of the 1995 Nobel Peace Prize-winning Pugwash
Conferences on Science and World Affairs and sits on the UN University
Council, the Governing Board of the Stockholm International Peace Research
Institute and advisory boards of other international institutes. Mr. Dhanapala
was named Sri Lankan of the Year 2006 by Sri Lankas premier business
magazine, the Lanka Monthly Digest (LMD). He has also received many
international awards.
Mr. Dhanapala was awarded a Bachelor of Arts (Honours) degree majoring
in English Literature with French from the University of Peradeniya Sri Lanka
and a Master of Arts degree in International Studies from the American
University in Washington DC. He was awarded honorary doctorates by the
Universities of Peradeniya and Sabaragamuwa, Sri Lanka, the Monterey
Institute of International Studies in the USA, the University of Southampton
UK and the Dubna International University in the Russian Federation. He has
published several books and written articles for international journals.
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Mr. Azwan Khan Osman Khan
Non-Executive, Non-Independent Director
Mr. Azwan Khan was appointed to the Board of Dialog Telekom on
21 July 2008.
He is the Group Chief Strategy Officer of Axiata. His current responsibilities
include Group Corporate Strategy, Group Marketing and Product
Development, Group Synergies, Strategic Initiatives, Branding and Corporate
Communications. He was formerly the Senior Vice President, Corporate
Strategy and Development in Celcom (Malaysia) Bhd (Celcom), a position he
held since mid-2005.
Mr. Azwan Khan is an engineering graduate (First-Class Honours)
from the Imperial College, University of London, with a broad mix of
telecommunications and non-telecommunications experience across a range
of companies. His professional experience also included an extensive time
with The Boston Consulting Group and Shell Malaysia.
Mr. Azwan Khan is also an active board member in Celcom Timur (Sabah)
Sdn Bhd, Sacofa Sdn Bhd, C-Mobile Sdn Bhd, Telekom Malaysia International
(Cambodia) Company Limited and SAMART Corporation Public Limited
Company (Thailand). He is also a member of the GSMA Chief Strategy Officer
Group.
Mr. Roni Lihawa Abdul Wahab
Non-Executive, Non-Independent Director
Mr. Roni L. Abdul Wahab was appointed to the Board of Dialog Telekom on
9 October 2008.
Mr. Abdul Wahab is currently the Senior Vice President, Investments
of Khazanah Nasional Berhad, Malaysia. He started his career in 1997
in investment banking with Capstar Partners, Inc. and later in 2000, at
J.P Morgan Securities Inc. Prior to joining Khazanah in 2005, he was with
United Engineers (Malaysia) Berhad Group where he was involved with the
group-wide corporate turnaround, restructurings, mergers and acquisitions
activities.
Mr. Abdul Wahab holds a Bachelor of Science degree in Economics from the
Wharton School, University of Pennsylvania.
Profile of Board of Directors
11Annual Report 2009
Group Senior Management
Pradeep De Almeida Group Chief Technology Officer
Mothilal De Silva Group Chief Strategy Officer
Sandra De Zoysa Group Chief Customer Officer
Upali Gajanaike Chief Executive Officer
Dialog Tele - Infrastructures
Vipula Gunatilleka Group Chief Financial Officer
Shayam Majeed Group Chief Programme Officer
Anoja Obeyesekere Group Chief Corporate Officer/
Company Secretary & Chief Executive Officer - Dialog Global
Nushad Perera Group Chief Marketing Officer &
Chief Executive Officer Dialog TV
Thivanka Rangala Group Chief Commercial Officer
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Lalith Fernando Group Financial Controller
Suren Goonewardene Chief Operating Officer
Fixed Telephony & Broadband Services
Priyanka Undugodage Vice President - Technology
Fixed Telephony & Broadband Services
Group Senior Management
Kavan Ratnayaka Chief Executive Officer
Fixed Telephony & Broadband Services
Supun Weerasinghe Chief Executive Officer
Dialog Mobile
Mohan Villavarayan Chief Financial Officer
Fixed Telephony & Broadband Services
13Annual Report 2009
Message from the Chairman
The Year That Was
It gives me immense pleasure to write to you at this significant juncture in the course of your company and
country a time of revival and opportunity. Sri Lanka rejoices the end of a nearly three-decade long conflict
that makes way for greater national development; a springboard for success in this global recovery era.
The year that ended was a challenging one for the industry all over, as global economies endeavoured
to overcome the downturn experienced during 2008. The pace of the recovery has been slow and it will
extend to some part of 2010. A great deal of uncertainty clouded the outlook during the second half of
2009 and beyond, as Government and organisational policies focused more on productivity enhancing growth
strategies. Recession forced a change in consumer trends prompting companies to invest more in the process
of innovation, research and development.
However, the recovery process is gathering steam with domestic demand-led
growth, plus, government interventions to prop economic expansion and reduce
uncertainty. Financial markets began once again to post strong gains fuelling
a wave of optimism. It is safe to say that the acute phase of the financial crisis
has passed and economies and industry-alike would experience a steady
accession in fiscal strength in the lead up to 2011.
Despite the economic challenges both domestically as well as globally
in 2009, the emergent milieu of peace in Sri Lanka will unveil the great
potential that exists before the Sri Lankan industry and its people and Dialog
has taken every possible step to capitalise on the improving development
and economic prospects of the country. In concert with the direction of the
Sri Lankan Government, the private-sector has a critical role to play in
extending the peace dividend to the people of the newly liberated
areas. Dialog is proud to take a lead in this process of national
revival; to serve as a digital bridge to connect and empower
the lives and futures of these people.
A Time To Rebuild
Dialog is steadfast and confident in its quest to return to a
state of singularly profitable operations. On the backdrop
of an overall downturn in the profitability of the countrys
telecommunication sector, the Year 2009 was used as a
year of structural re-engineering with respect to many
aspects of the organisation and its business. Despite
the setbacks and the stiff external challenges during
the course of this year, your company took steps to
restructure its operations and businesses. The company
has made steady progress on top of an effective and
well-administered programme of business restructuring
and cost rescaling.
During the course of the year we took several bold decisions
with the objective of building an infrastructure platform for
the future which is both competitive as well as cost efficient.
Dialog embarked on an aggressive programme of network
modernisation to meet the diverse challenges and demands of
the fast-changing mobile landscape. We will continue to lead
South Asias mobile communications landscape with a 100%
Next Generation Network (NGN) deployment. Dialogs NGN
core network will support the companys 6 Mn. plus strong and
14 Annual Report 2009
rapidly growing subscriber base at much reduced operational cost, in addition to enabling a host of advanced
subscriber features and convergence opportunities.
A Penchant for Excellence
Your company has maintained best-in-class status in nearly every sphere of operation and continues to set
benchmarks both in Sri Lanka and in the region. During the Year, our Mobile business continued to lead the
mobile market with an aggressive market share of 48 per cent. Our Satellite TV service operated by Dialog
Television continued to grow with its subscriber base increasing by 22 per cent. Completing our portfolio
of quadruple play services, the fixed telephony business operated by Dialog Broadband Networks exhibited
growth of 3 per cent while Broadband services grew by 57 per cent.
In parallel with excelling in the market place we have constantly endeavoured to implement global best
practice and governance initiatives and our untiring efforts manifested in Dialog topping the countrys first-ever
corporate accountability rating, while simultaneously winning several accolades with respect to the value
of the Dialog brand and the esteem of the organisation in Sri Lankas corporate sector. Recognition of our
paradigm and its implementation, as being best-in-class will no doubt encourage us to be steadfast in our
quest to empower Sri Lankan lives and enterprise. The rating bears testimony to the highest levels of corporate
responsibility, business ethics and transparency we have maintained across all our business practices; a
dimension we must all stand proud of.
Your Companys Future
The years 2008 and 2009 posed a challenging period for all at Dialog, which compelled us to implement an
aggressive programme of business re-engineering while keeping our customers and shareholders in focus at
all times. We believe we have built a platform for future growth and continued enhancement of our leadership
position in Sri Lankas ICT sector.
For the year under review, Normalised Operating Profits (EBITDA) showed consistent quarter-by-quarter
growth to end at Rs. 9.3 Bn. However, the application of non-recurring charges and non-cash expenditure
arising in the main from the asset restructuring and modernisation strategies alluded to earlier, results in a
negative Net Profit after Tax of Rs. 12.2 Bn.
The untiring efforts of the management and staff of your company in respect to cost rescaling have shown
fruit, and 2010 holds much promise as a turnaround year for Dialog Telekom. We have been relentless in our
pursuit of technology and service excellence over the years, which has positioned us as the undisputed leader
in the mobile services sector in Sri Lanka. We will draw upon these same strengths to once again position
Dialog as a singularly profitable entity on Sri Lankas corporate landscape.
Our Gratitude
I wish to thank our customers and our shareholders who continue to support and encourage us in our endeavour
to build and operate the countries premier portfolio of quadruple play services.
I wish to recognise the untiring efforts of the entire Dialog team, ably led by its Group Chief Executive,
Dr. Hans Wijayasuriya and his management team whose unremitting commitment has steered Dialog through
what was no doubt a difficult period. My appreciation goes out to every member on the Board, for their
support and advice during the past year. I would also like to thank the Government of Sri Lanka, the regulatory
authorities and our business partners for their continued support towards the Companys success.
Datuk Azzat Kamaludin
Chairman
30 April 2010
Message from the Chairman
15Annual Report 2009
Group Chief Executives Review of Operations
The Year 2009 embodies a phase of aggressive and multi-faceted transformation at Dialog. While operational
efforts remained focused on enhancing market and financial performance, we applied equal if not greater
emphasis to structural transformation. A host of strategic initiatives, some seeded in tandem with the
onset of harsh external environments in 2008, were accelerated towards full blooded implementation and
manifestation during the course of the year 2009. The focus and effort of management was hence three
pronged - to deliver through structural transformation a rescaled and reinvigorated platform for future growth
and sustainability, to regain in the short term a position of fundamental profitability through operational
performance improvements, and to secure, simultaneously with both the former objectives, the consolidation
and growth of the companys position of leadership as Sri Lankas premier connectivity provider. Management
commitment and determination remained consistent and undifferentiated along these three dimensions
throughout the year.
In reporting on the outcome of our efforts, I would hence seek to focus separately,
on fundamental financial and market performance trajectories on one hand,
and structural transformation on the other.
Macro-environmental Impact on the Mobile Sector
The impact of, micro and macro external environments on our business,
was singularly evident in 2008. The inter-play between macro-economic
dynamics experienced in 2008, consumer behaviour, and price elasticity of
ICT consumption, resulted in radical stunting of growth trajectories enjoyed by
Dialog and other aggressive investors in the sector. In particular revenue pools
and resulting top line growth envisaged had failed to materialise at year end 2008.
Compounding a sluggish revenue environment, primary and secondary
impacts of inflation and escalating interest rates experienced in 2008,
had adverse impacts on the spending power of the Sri Lankan
consumer as well as on the organic cost base of the Company.
These dynamics and their proximity to fundamental profitability
belied seemingly justified assumptions we had made during
the growth years of 2006 and 2007, with respect to returns
on capital and capacity building. Accordingly, we placed little
emphasis on predicting or typifying the macro-environment
in 2009 or on the derivation of assumptions with regard
to its inter-play with business fundamentals. Instead, we
remained focused on transforming ourselves to achieve a
sustainable and profitable business formulation, aligned
with the new competitive and economic order.
The Economy and Industry in 2009
Sri Lankas economy grew by 3.5 percent in 2009. The
Industrial sector recorded growth of 4.2 per cent, (down
from 5.9 per cent in 2008) whilst services grew at 3.3
per cent. The telecommunications sector however, posted
a negative growth of approximately 4 per cent with respect
to overall industry revenues in comparison to the previous
year. Subscriber growth was however aggressive, with the
number of mobile connections increasing by 25.9 per cent
to 13.9 million. In contrast the number of fixed telephone
lines decreased by 0.5 per cent to 3.4 million leading to
an overall telecommunications sector growth of 19.6
per cent to reach a total subscriber base of 17.4 million.
16 Annual Report 2009
Group Chief Executives Review of Operations
Mobile penetration (Mobile Connections per capita) reached 68.2 per cent at year end, leading fixed line
penetration which is estimated at 17 per cent, by a significant multiple. In line with subscriber growth, Mobile
Industry Revenue depicted a decline of 4 per cent.
The year 2009 presented significantly less offensive macro-economic conditions and in particular, exhibited
relatively benign dynamics with respect to domestic inflation (decelerating to 4.8 per cent point to point by
end of the year). In contrast, competitive environments in 2009 presented an exacerbation of the price war
behaviours seeded in the previous year. The combine of modest economic growth (3.5 per cent), post-inflation
consumer inertia and industry precipitated price de-escalation on the backdrop of stunted price elasticity of
consumption, flagged the extinguishing of industry growth as we knew it from the perspective of the pre-
2008 era. The impact of unabated price reductions manifested in an estimated reduction of 25 per cent in
industry Revenue per Minute (RPM) and (an estimated) modest growth of 4 per cent in minutes consumption
demonstrating constrained price elasticity of consumption. Industry profitability declined to significantly
negative levels as a result, signalling the need for far reaching structural correction at a company as well as
industry stratum.
Structural Transformation and Rescaling
As alluded to earlier in this report, structural transformation formed one of three fundamental pillars in Dialogs
strategic focus for 2009. Within this transformation agenda the company applied parallel scrutiny to the
right sizing and corresponding rescaling of technology platforms, operating cost structures and organisation
design. Rescaling along multiple organisational dimensions, and against aggressive time scales, presented
the organisation with the challenge of implementing simultaneously and on a timely basis, a multiplicity of
impactful structural corrections. A principal tenet of the transformation agenda was however the application
of equal emphasis to the continuous strengthening and uncompromised development of the companys
customer offering in terms of service excellence, product quality and value.
Technology, automation and modernisation emerged as a central lever within our transformation ethos.
Rescaling of our technology platforms and related operating cost structures and capability frameworks were
derived directly from the opportunity presented by emerging Next Generation Network (NGN) technologies.
NGNs empower technologically progressive operators with the opportunity to de-scale operating costs by a
significant margin. NGNs also enable quantum reductions in incremental capital expenditure and in the carrying
values of core network assets, due to the 80 per cent over reduction in per-subscriber core network capital
costs.
Other structural dimensions addressed via rescaling initiatives included process optimisation and automation,
alongside the strategic application of information systems and efficient technology solutions across multiple
segments of the companys value chain. These structural thrusts formed the cornerstone of efficiency and
productivity enhancement, operational process cost reduction, and organisation rightsizing related outcomes
achieved during the course of the year under review.
Accelerated rescaling as alluded to above necessarily gave rise to one-off correctional costs being recorded
during the course of Financial Year 2009 (FY09). Network modernisation resulted in the accelerated
amortisation of the companys legacy core network, and its replacement with a 100% NGN infrastructure.
While the resulting one-off amortisation charge amounted to Rs. 6 Bn., the company is set to benefit by related
operating cost savings of Rs. 1.5Bn. on an annualised basis, yielding an IRR in excess of 100% and payback of
less than 12 months on NGN investments.
Rescaling also extended to organisation design optimisation and rightsizing. The Companys Human Resource
Optimisation programme was implemented through a Two-Phase Voluntary Resignation Scheme (VRS). The
total provision in 2009 for the two phase VRS programme was Rs. 904 Mn.
Exceptional Charges & Prudence in Treatment of Assets
In addition to modernization specific amortization charges, the company continued to exercise a stringent level
of prudence with respect to the treatment of its fixed assets. The company has reinforced close adherence to
international best practice with respect to accounting provisions made against equipment obsolescence on
17Annual Report 2009
Group Chief Executives Review of Operations
the backdrop of rapid technology advancement and potential asset impairment. Furthermore, depreciation
estimates and Inventory/Capital Work in Progress provisioning policies were set at conservatively stringent
levels in line with International best practices.
Accordingly, the Group accounted for a total of Rs. 11.05 Bn. in exceptional and non-recurring charges during
the course of 2009. A majority (92 per cent) of these exceptional charges, amounting to Rs. 10.15 Bn. were
non-cash in nature. The remaining cash impacting charges being those one-off charges arising from rescaling
activities in the domain of organisation rightsizing.
The Group Net Profit After Tax (NPAT) of negative Rs. 12.2 Bn., hence includes one-off rescaling costs totaling
Rs. 11.05 Bn., 92 per cent of which are Non-Cash in nature.
Normalised Operational Performance
Normalised NPAT (excluding exceptional/non-recurring charges set out above) was recorded at Negative
Rs. 1.16 Bn., down 45 per cent from 2008 (during which period normalised NPAT was recorded at Rs. 801
Mn.). Correspondingly, normalised EBITDA and Revenue exhibited 4 per cent growth and negative 1 per cent
contraction respectively, on a YoY basis.
Notwithstanding negative movement in normalised earnings Year on Year, a detailed analysis of Quarter on
Quarter performance trends during the year under review, signal the tangible manifestation of structural
correction outcomes. These outcomes vindicate the companys strategy of compressing the major
and impactful part of its Structural and Operational rescaling programme into a single calendar year.
The acceleration strategy was based on the rationale that the enhanced operating model envisioned, if
approached expeditiously, would in turn commence delivering returns within the same year. Operational
improvements so envisioned were achieved notwithstanding harsh external impacts including but not limited
to those arising from price war conditions and resultant dilution of revenue growth aspirations.
Accordingly, company EBITDA grew 27, 14, 11, and 27 per cent over successive quarters of 2009 compounding
to 19 per cent corresponding quarter growth in the last quarter of 2009 relative to the corresponding
quarter of 2008. Group EBITDA followed a similar trajectory with successive quarter growth of 36, 24, 9 and
33 per cent. EBITDA turnaround was underpinned by expeditious implementation of Cost Rescaling activities.
Direct costs and Operating Costs (excluding depreciation and non-recurring charges) reduced by 6 per cent
and 21 per cent respectively relative to Q4 2008, signifying the quantum impact of strategic cost rescaling
initiatives undertaken by the Company. Full-year operating costs exhibited a reduction of 11 per cent, relative
to year 2008.
Quantum improvement in terms of Cost performance was supplemented with robust revenue growth
notwithstanding the challenges posed by price-war conditions and the dilution of price elasticity of
consumption. Company revenues grew by 7% in Q4 2009 on an immediate QoQ basis. Revenues in Q4 2009
exceeded prior year corresponding quarter revenues by 10 per cent, but full year revenues remained diluted
relative to 2008 as a consequence of pressure on revenue growth during the 12 months commencing Q3 2008.
Overall, Revenue Growth was fuelled by positive gains in the mobile market on the backdrop of aggressive
price competition. The Companys mobile subscriber base stood at 6.37 Mn. representing a 16 per cent growth
over the previous year. Accordingly, the company reinforced its leadership in Sri Lankas mobile sector with a
revenue and subscriber share of approximately 57 per cent and 48 per cent respectively.
Our non-mobile businesses spanning fixed telephony, broadband and data services (sited in Dialog Broadband
Networks DBN), and digital television services (sited in Dialog Television - DTV) demonstrated similar positive
performance trends over the year. Both subsidiaries remained dilutive to the Group recording negative Full
Year NPAT levels of Rs. 2,588 Mn. and Rs. 769 Mn. respectively. DBNs Broadband and internet based service
segment continued to exhibit aggressive growth with revenue increasing by 8 per cent QoQ and 57 per cent
over the previous year. DBNs fixed-line CDMA subscriber base grew by 3 per cent as at the end of 2009
to stand at 177,000 subscribers. DTV recorded revenue of Rs. 458 Mn. in Q4 2009, up 12 per cent QoQ and
28 per cent over the previous year. Revenue growth at DTV was fuelled by aggressive market performance
characterised by a year-end subscriber base of 150,000, representing a 22 per cent growth over the previous
year.
18 Annual Report 2009
Group Chief Executives Review of Operations
Strengthening profitability trends featuring revenue growth and re-scaling of cost structures were supported
by diligent working capital management to yield Group operating cash flows of Rs. 10.82 Bn., up over 50 per
cent YTD relative to the previous year. Company cash flows grew by a similar dimension, with operating cash
flows for 2009 recorded at Rs. 12.3 Bn., a two-fold increase relative to 2008.
Country Rebound and Future Potential
Robust and consistent performance enhancement over successive quarter of 2009 signal that rescaling
initiatives during 2009 have yielded, albeit during challenging economic times, a platform for aggressive market
capture going forward. The ingredient of well founded optimism we would add to the sustainability of our
growth aspirations is derived from the certain rebound in the countrys economy. As Sri Lanka enters an era of
peace and limitless opportunity on the regional landscape, an accelerated rebound is within immediate reach
of multiple tiers of the countrys economy and socio economic stratum. Invigoration of consumer spending
power, and resultant demand for our products and services as a result of a nation in rebound, is expected to
provide Dialog with a buoyant forward growth trajectory.
The Year 2010 would no doubt signal an inflexion point in Sri Lankas growth trajectory. The combine of an
upturn in the domestic economy arising from multiple facets of the peace dividend, increased FDI and economic
and market expansion arising from the comprehensive integration of the northern and eastern provinces is
expected to result in 7 per cent GDP growth in 2010 and 7.2 per cent in 2011. The resultant improvement in per
Capita income is expected to lead to an increase in disposable income and household spending power which
will in turn provide expanded revenue potential for the mobile sector in particular and the telecommunications
and infotainment sectors in general.
Broadband and Pay Television sectors remained significantly under-penetrated at estimated levels of 1 per
cent per capita and 3 per cent per household respectively. Under-penetration of these sectors, leaves open
the prospect for significant growth going forward especially in the context of a rebound in consumer spending
power and disposable income.
We are singularly confident of the rebound and forward potential of the Sri Lankan economy and the market
for ICTs. Accordingly, Dialog will continue to play a lead role in the countrys ICT development thrust, thereby
making a lasting and sustainable contribution towards the achievement of the countrys socio economic
development objectives going forward.
Leadership & Excellence
The third and singularly overarching strategic objective for the Year under review was the delivery of an
uncompromised and excellent level of service to our customers, notwithstanding the aggressive focus on
structural and operational rescaling. The context in which service delivery excellence is addressed at Dialog
encompasses a multitude of product leadership dimensions including but not limited to the 4A paradigm of
Availability, Affordability, Applicability and Affinity, supported by excellence in customer service aimed at
delivering an unparalleled and value adding customer experience. Undisputed coverage leadership, excellence
in customer service and a cutting edge portfolio of value-added services continue to be cornerstones of the
Companys leadership position and competitive advantage in Sri Lankas mobile industry.
Expansive coverage, superior customer service, competitive tariffs and a wide portfolio of cutting edge
mobile services has consistently laid the foundation for Dialogs continued success in capturing a major share
of subscriber additions during the year. In 2009, Dialog became the first mobile operator in the country to
extend its GSM network to the newly liberated areas in the Northern Province with the cities of Kilinochchi and
Mullaitivu being covered within 3 months of the liberation of the Northern Province. From a forward looking
perspective, the opening of markets in the Northern and Eastern provinces of Sri Lanka affords us with the
dual opportunity of new subscriber growth and the extension of connectivity and empowerment solutions
to communities in the recently liberated areas. The Companys 2G and 3G base station sites stood 1,643 and
673 respectively as of FYE 2009. Accordingly Dialog reinforced and extended its leadership as the countrys
largest and fastest growing 2G and 3G network, supported by the widest customer service infrastructure in
the sector, spanning all 9 provinces of Sri Lanka.
19Annual Report 2009
Dialogs product portfolio is also well positioned with respect to the escalation in adoption of Internet based
services. Advanced Internet and data solutions will shape the future of the global telecommunications industry,
a trend which is mirrored in Sri Lanka with significant growth in demand for mobile and fixed broadband services.
Despite a relatively modest growth in demand in absolute terms, during 2009, as a result of the consumer
level microeconomic dynamics described earlier, broadband revenues have grown by over 100 per cent in
relative term signifying the forward potential of this sector. Dialogs broadband technology portfolio spans
3.5G HSPA services at speeds up to 28.8Mbps and WiMAX based services for fixed and nomadic applications.
Both networks (HSPA and WiMAX) provide extensive wireless broadband access, with coverage across most
cities and towns across Sri Lanka.
In the sphere of infotainment, Dialog Television continues to offer a market leading portfolio of local and
international content delivered through an island wide digital satellite broadcast footprint. Dialog Television
remains the undisputed leader in the provision of Pay TV in Sri Lanka with dominant market share and an
unparalleled service offering to current and potential customers. DTV will continue to transform pay-television
in Sri Lanka, with the ultimate objective of making satellite based education, information and entertainment
affordable and accessible to all citizens.
Dialogs leadership in the customer and market space, was reinforced through international and domestic
recognition. The Dialog Brand was voted the Peoples Mobile Telecom Brand and the Youth Brand of the Year,
at the SLIM-Nielsen Peoples Awards, which is widely regarded as a representation of the peoples choice.
Dialogs commitment to achieve world class standards in service delivery processes was rewarded through
the company achieving Customer Operations Performance Centre (COPC) 2000 CSP Standard Release 4.2.
Accordingly, Dialog has the distinction of becoming the first Sri Lankan company to achieve this prestigious
international BPO industry certification. Dialog ECM, the companys multi-channel contact centre operation
will continue to motivate Sri Lankas BPO industry to levels on par with global standards.
Customer and Market performance was also underpinned by a robust fabric of Corporate Accountability and
Governance. In 2009, Dialog topped the countrys first-ever corporate accountability rating. Recognition of
our paradigm of business integral corporate responsibility which creates an inextricable link between business
strategies and sustainable development, and will no doubt embolden our quest to empower Sri Lankan lives
and enterprises through an ICT4D paradigm. The rating bears testimony to the highest levels of corporate
responsibility, business ethics and transparency we have maintained across all our businesses.
Contribution to the Nation & Corporate Responsibility
Dialog continues to be a committed and significant stakeholder in the national economy with respect to
direct and indirect investments as well as in terms of tangible (consumer surplus) contributions to socio-
economic development through ICT4D. Dialog and its principal shareholder Axiata Group (formerly known as
TM International Bhd) continued to be placed among the largest investors in Sri Lanka in 2009. The company
was recognized as the largest investor in Sri Lanka by the Board of Investment in successive years 2007 and
2008. Dialog made direct investments of Rs. 10.1 Bn. in 2009, gaining recognition by the Board of Investment
as one of the largest investors in Sri Lanka for the 3rd consecutive year.
The Group contributed Rs. 5.02 Bn. in taxes, fees and levies to the GoSL in 2009. In addition to this sum,
the Group collected a further Rs. 6.56 Bn. in VAT, MSL and other taxes on behalf of the GoSL, remitting
a total of Rs. 8.06 Bn. to the exchequer during the course of 2009. It is encouraging to note that a major
part (52 per cent) of the Companys direct and operating cost related outflows represented payments to Sri
Lankan business partners, distributors and service providers drawn from across a variety of sectors. Dialogs
island wide operation is also estimated to have created 10,000 indirect employment opportunities across
all 9 provinces of the country. Indirect employees supplement the 3,384 direct employees of the company
in supporting the nations largest telecommunications network. Dialog Telekom is by far the mobile sectors
largest employer accounting for approximately 55 per cent of mobile sector employment. Over the past
decade, Dialog Telekom and its principal shareholder Axiata have been consistent in their commitment to
developing Sri Lankan talent and creating employment and development opportunities for Sri Lankans from
all walks of life and from across all regions of the country.
Group Chief Executives Review of Operations
20 Annual Report 2009
Dialog also made a transformational contribution to Sri Lankas education sector in 2009 through the launch of
Nenasa a satellite based distance learning channel produced in collaboration with the Ministry of Education
and the National Institute of Education (NIE) and Broadcast by Dialog Television. Nenasa opens a new vista
in access to education in Sri Lanka with the use of satellite technology to function as a distance learning
bridge for Sri Lankas student population from across the island. Nenasa bridges teacher arbitrage through the
broadcast of high quality curriculum based education content supplemented with a state of the art web based
learning management system. The company also continues to grow the Dialog scholarship programme which
supports 250 students through advanced level and university education, with the objective of offering parity
education opportunities, transcending geographic and societal barriers.
In 2009 Dialog unequivocally reiterated its commitment towards ensuring its business operations were aligned
to support the ideals of sustainability and accountability. Dialog is also mindful of the delicate balance that it
needs to strike between delivering strong financial growth with development that is ultimately equitable and
sustainable. Dialog sees this challenge as an opportunity to draw on our innate forward-looking organisational
culture to deliver socially innovative and inclusive multi-sensory ICT services, which lead towards the digital
empowerment of all Sri Lankans and the enabling of an information society.
Conclusion
The Year 2009, was one which presented us with multiple and seemingly incongruent challenges. On one
hand we were called upon to restructure our business in line with emerging cost and revenue environments,
while on the other we were challenged to grow our position of leadership in Sri Lankas ICT sector through
the delivery of sustainable business outcomes embodied in increasing levels of mass affordability and social
empowerment. We will continue to reshape our business to be leaner and stronger in terms of productivity
and cost leadership, while being uncompromising in maintaining our leadership as Sri Lankas premier ICT
provider. We will also continue to be astutely committed to excellence in service to our customers and to
making a quantum and empowering contribution to the national economy and society at large.
We are emboldened by the robust, Quarter-wise fiscal performance improvements and business growth
trajectories, the completion of a comprehensive portfolio of Operational and Structural Rescaling activities,
and the emergence of a positive business environment in the wake of peace. Dialog rejuvenated, is in a position
of confidence and strength to capture and monetise growth opportunities going forward.
Acknowledgments
First, I would like to thank our customers for their valued patronage of our services. Their encouragement and
loyalty has provided the Dialog team with the courage and determination to steer operations through challenging
environments. I would also like to express my sincere appreciation for the support and encouragement
extended to us by the Government of Sri Lanka and its agencies in particular, the Telecommunications
Regulatory Commission of Sri Lanka, the Board of Investment, the Ministry of Mass Media and Information and
the Ministry of Posts and Telecommunications. I also extend herein my gratitude to our chairman Datuk Azzat
bin Kamaludin and my fellow Board members for their strategic input, direction and invaluable counsel made
available to me at all times.
In closing, my unreserved gratitude goes out to my team; for it is their determination, unfailing commitment
to the company, and inimitable sprit of innovation that has enabled Dialog to execute self transformation of
significantly radical proportions whilst simultaneously consolidating its position at the helm of Sri Lankas ICT
sector. Together we are confident that the rejuvenated Dialog will build on its industry leadership to achieve
a position of robust profitability while continuing to set paradigms for others to follow and making a lasting
contribution to our country and people.
Dr. Hans Wijayasuriya
Group Chief Executive
30 April 2010
Group Chief Executives Review of Operations
Business & Financial Review
22 Annual Report 2009
2,211
11%16%
26%
38%
55%
68%
3,3625,413
7,983
11,082
13,950
2004 2005 2006 2007 2008 2009
Total Industry Subscribers '000 Mobile Penetration Rate
DIALOG TELEKOM PLC
The first telco in South Asia to launch HSPA + the latest upgrade in mobile broadband
The first mobile operator in the country to extend its GSM network to the newly liberated areas
Dialog - continuing to grow with the largest 3G/3.5G Network in the country
New Image to unite with Parent Company
Dialog Telekom transformed its logo, aligning with
the re-branding exercise carried out by the parent
company Axiata. Currently Axiata is one of the
largest Telcos in Asia operating in 10 countries
serving over 120 Mn. customers. The name and logo
change was subsequent to the de-merger from the
Telekom Malaysia Group and this symbolises a new
beginning, uniting the operating companies with
a visual and tangible sense of shared purpose and
belonging. Hence the refreshed Dialog logo, in line
with aforesaid resembles Axiatas brand identity. This
is not only a change in appearance for Dialog but a
renewal of brand promise in enriching lives through
multi sensory connectivity, and to move forward
continuing the trust and excellence the brand has
built over the years. Strengthened by this new identity
Dialog will strive to deliver its unparalleled service,
reach out to connect lives and to carry forward the
vision of empowerment into the future.
Dialog Telekom consists of 3 strategic business units
(SBU), namely Dialog Mobile, Dialog Global and
Dialog Tele-Infrastructure (DTI). In addition to its core
business of mobile telephony, Dialog Global operates
a wide portfolio of international telecommunications services, whilst DTI is the Companys national telecommunications infrastructure arm.
Dialog Mobile
The Company has successfully maintained its market share reaffirming its position as the undisputed leader in the mobile market amidst macro-economic externalities. The Companys mobile subscriber base grew by 16 per cent YoY to stand at 6.37 Mn. while minutes of usage was 18 Bn., a 27 per cent increase compared to 2008.
Mobile Sector Perfomance
As depicted in figure 1, Sri Lanka has witnessed an accelerated mobile penetration growth reaching close to 68 per cent in 2009. A study by Nokia has unveiled that Sri Lanka has the lowest Total Cost Ownership (TCO) with a mobile phone being less than USD 5, making it highly affordable, a key driver for high penetration rates.
Further, liberalization of the Northern Province will provide an opportunity for greater network investments and new subscriber growth. Sri Lankas mobile market indicates a high level of competition with the countrys operators jostling for market position, largely through tariffs and the basic non-
voice services.
Figure 1: Mobile Subscriber Growth & Penetration Source TRC
Figure 2: Dialog Subscriber Growth (in '000)
Business & Financial Review
23Annual Report 2009
Mobile Business Performance Snapshot
The Company has consolidated its position as the
leader in the Mobile telecommunications industry in
2009 by maintaining its SIM market share at 48 per
cent and revenue share at 57 per cent withstanding
intense competition. Dialog has deepened its ties
with the subscriber by connecting over 6 Mn. mobile
customers and has also elevated the user experience
to a new dimension through many Sri Lankan firsts
and continuous investment in technology.
A boom in data services was evident in 2009,
especially driven by Mobile Broadband based on
HSPA (High Speed Packet Access) Technology.
Total Data services grew by 2.1 times during the
year with over 28,000 subscribers opting for Mobile
Broadband. Other data services that experienced
a hike were GPRS and SMS, revenue growing by 32
per cent and 7.5 per cent respectively.
Dialog strives to reach out to many lives through the
concept of affordability and inclusion, tapping the
bottom of the pyramid with many consumer centric
offers. Undisputed coverage leadership, excellence
in customer service and a cutting edge portfolio of
value added services continue to be cornerstones of
the Companys leadership position in the Sri Lankan
mobile industry.
Focus on Affordability and Inclusion
Dialog Discount Zones
Dialog Mobile, unveiled yet another first for its prepaid
customers with Dialog Discount Zones in December
2009. Dialog is the first and the only operator in the
country to introduce this revolutionary location and
time based discount scheme to Sri Lankan mobile
users. Dialogs Discount Zones provide customers
with dynamic discounts and pricing based on
the location of the customer and the time of day.
This unique offer entails customers on a random
basis to receive notifications that can be activated
instantly by dialing #677#. This enables customers to
experience 50 to 70 per cent reductions in tariffs not
only for local calls and SMSs but also for IDD.
Prepaid Mobile Broadband on Per Minute
Sachets
As a key initiative to provide affordable mobile
broadband services, Dialog launched prepaid mobile
broadband priced at per minute sachet packs.
Dialog has managed to proliferate broadband access
through mobile broadband technology at very
low rates making it accessible to all. Its constant
commitment to consumer has resulted in offering
rates as low as Rs. 20 for 30 minutes of usage.
New Lite Service Package for Blackberry
Smartphones
Dialog partnering with Research in Motion (RIM)
launched this all new BlackBerry Lite package to
attract more customers to the BlackBerry platform.
This package offers unlimited email at just Rs. 500.
BlackBerry smartphones from Dialog provides
a great opportunity for large organizations and
professionals, enabling them to be connected to co-
workers and other business partners while on the
move. The flexibility experienced in using the service
has boosted productivity and efficiency, making
it a must have in the business world. Through the
introduction of such affordable packages Dialog is
reaching out to a broader market segment including
small business enterprises as well as entrepreneurs,
enabling them to grow through the benefits offered
by the service.
Business & Financial Review
Table 1: Performance Indicators in 2009
Over 6Mn mobile subscribers connected 16% YoY
Unmatched portfolio of VAS 2.1X in in mobile data revenue, driven by Mobile Broadband
18Bn total minutes of usage 27% YoY
1,643 2G & 673 3G base station sites Over 100 base stations in North & East
100% NGN core network Launch of HSPA+
Customer Management
Non Voice services
Usage
Coverage
Technology
Table 1: Performance Indicators in 2009
24 Annual Report 2009
EZ Loan from Dialog
EZ Loan from Dialog provides an opportunity for a
pre-paid customer to obtain a small loan from Dialog
when out of credit. A pre-paid customer can top-up
his account by Rs. 20 through a EZ Loan from Dialog.
This service is an extension to Dialogs current credit
share facility which enables customers to share
credit between friends or family. Initiatives such as
EZ Loan from Dialog re-enforces Dialogs continuous
effort to reach the customer with a novel and more
affordable service.
Pre-paid Per Minute Package
This is another initiative by Dialog to provide the
customer with affordable tariffs, by choosing a
tariff plan that best suits their calling patterns. The
Company introduced a per minute package for
pre-paid customers facilitating selection between a
per second or a per minute tariff plan. The all new
pre-paid per minute package enables a customer to
enjoy tariffs as low as Rs. 2 per minute with further
discounts for the 2nd and the 3rd minute. The customer
also has the benefit of easily switching between the
per second and per minute plans.
Coverage Leadership
Supporting Development Drive through
Connectivity
Dialog was the first mobile operator in the country
to extend its GSM network to the newly liberated
areas in the Northern Province, expanding mobile
coverage without compromising on quality. Dialog
has rolled out over 100 base stations in the North and
East within a short time span delivering its promise
of connectivity to its customers. The commissioning
of mobile telecommunications services in the region
was initiated in less than 90 days after the liberation
on 18 May 2009. This demonstrated Dialogs
continued contribution towards the development
of infrastructure and its unstinted support for rapid
growth.
Mobile coverage from Dialog now reaches areas such
as Mankulam, Pooneryn, Elephant Pass, Thunukkai
and Madhu in addition to main cities Killinochchi and
Mullaitivu, and is currently progressively expanding
its services in the province. Dialog has invested
USD 10 Mn. in 2009 and is currently the largest ICT
infrastructure investor in the region.
Widest Distribution Network
Dialog has established a nation-wide dealer network
operated primarily by 10 exclusive business partners.
Dialogs dealer network has established points of
presence for its products and services in all major
towns and cities across Sri Lanka including the
Northern and Eastern provinces.
Dialogs distribution network comprises of over
42,000 retail outlets, 22 Dialog Arcades and Service
Centers and over 100 franchise customer service
points.
Business & Financial Review
Figure 3: GSM Coverage Figure 4: 3G/3.5G Coverage
25Annual Report 2009
Leap in Technology
First in South Asia to launch HSPA+
Dialog is the first mobile operator in the region
to launch HSPA+ the latest upgrade in mobile
broadband. This technology enables customers
to experience faster response and less latency
for media rich applications, including high
definition video streaming, web surfing and other
next-generation wireless applications with high
bandwidth requirements. Launched in December
2009, Dialog HSPA+ supports downlink speeds
up to 28.8 Mbps a colossal leap from the existing
technology.
Dialog expects to rollout 28.8 Mbps HSPA+ network
across its 3.5G network spanning Colombo, Kandy,
Galle, Kurunegala, Anuradhapura, Nuwara Eliya,
Trincomalee and other major towns in Sri Lanka,
further capitalizing its strength as operator with
the largest and widest 3G/3.5G network in the
country.
Next Generation Network Technology
As an initiative in the ongoing cost re-scaling
program Dialog stepped into a one off network
modernization to achieve a 100% Next Generation
Network (NGN) core network via migration of all
mobile core network elements from legacy Time-
Division Multiplexing (TDM) to IP based switching.
NGNs provide technologically progressive operators
with the opportunity to de-scale operating costs by a
significant margin, while also reducing future capital
expenditure and carrying values of core network
assets due to the over 80 per cent reduction in per
subscriber core network capital costs. Dialogs NGN
core network will support the Companys strong
and rapidly growing subscriber base in addition to
enabling a host of advanced subscriber features and
convergence opportunities.
Value addition through Innovation
Dialog TradeNet
Dialog Telekom, partnering with Govi Gnana Seva
(GGS) launched a service to deliver spot and forward
agricultural commodity price information via mobile
phones. The service is based on Dialogs TradeNet
platform which is a repository for national-
level market information and this acquires on-line
agri-produce price information from three dedicated
Economic Centres at Dambulla, Meegoda and
Narahenpita. This initiative has immensely helped
the agriculture sector enabling dissemination of
information via multiple digital communication
technologies such as SMS, Unstructured
Supplementary Service Data (USSD) via mobile
phones (#977#), web and Interactive Voice Response
(IVR) platforms, thus limiting information arbitrage.
This pioneering initiative is able to bring down
many obstacles inhibiting the growth in agricultural
sector and drive development through farmer
empowerment.
In-flight and Ocean Coverage
In 2009 Dialog Telekom in partnership with Aero
Mobile, launched another first in Sri Lanka, the in-
flight calling service which enables a customer to
safely use their mobile phone on selected flights.
Dialogs International Roaming customers now have
access to in-flight connectivity with 14 international
airlines. It is not only useful in keeping in touch with
friends and family but also convenient in attending
to business, while on long haul flights. Dialog also
extended this service, by connecting customers on
vessels operated by 24 Cruise operators for in-cabin
and ocean-based connectivity. This is yet another
initiative expressing Dialogs commitment to provide
a consumer centric, rich mobile communication
experience.
Growth in Value Added Services
Dialog continues to expand its wide portfolio of
content, establishing itself as the prime mobile
operator in enhancing user experience through
VAS. Growth in non voice revenue has seen an
unprecedented growth during the past years in
the industry and avails an opportunity due to
commoditization of voice. Over 20 VAS products
have been launched in 2009, capitalizing on the
growth in non voice services.
Dialog Global
The Company continued its impressive growth from
the strong base established in 2008. International
business operations continued to post positive
revenue and Minutes of Usage (MoU) growth in its
primary business lines of International Wholesale
and International Roaming. Overall revenues grew by
33 per cent in 2009.
Having established leadership in GSM roaming
with coverage of 211 destinations worldwide
encompassing over 530 networks, the Company
concentrated on enhancing the breadth and quality
Business & Financial Review
26 Annual Report 2009
of its GPRS/EDGE, 3G/3.5G and CAMEL (Pre-paid
voice roaming) relationships by growing bilateral
partnerships with global carriers by 50 per cent
during the year.
International Voice and Video
Key international partnerships of strategic value were
added to the portfolio of foreign carriers to cater to
the growing demand in addition to improving the cost
profile and IDD quality to targeted destinations. Traffic
volumes in 2009 grew by 45 per cent compared to
2008. The Company continued to expand its Video
calling destinations during 2009.
International Data
The Company added several key corporate customers
to its portfolio. Majority of the demand for data
services continued to be driven by the need for IP
based services. Key international partners were
identified and added to strengthen the coverage
and flexibility when providing convergent MPLS
based solutions. The availability of fiber based last
mile to key locations in Sri Lanka further enhanced
the service offering leading to 25 per cent increase
in data revenue.
Business & Financial Review
Product Description
Breaking News on
Mobile
Dialog being the first to introduce news alerts to the country has successfully connected all
major local and international news providers to keep its subscribers informed of breaking
news as and when it happens. Content partners for its services include Government
Information Department, Daily Mirror, Daily News, Derana, JNW News, Lanka Business
Online, CNN and NDTV of India.
Call & SMS block This feature allows the customer to block SMS and calls. Call block service can be activated
by simply typing #107#. To block SMS, type BLOCK and send to the customers own
number. This service can also be setup via My Dialog online self-service. Hence the customer
can block (black list) receiving calls and SMS from a specific number or a list of numbers.
Friend Finder Friend Finder is based on the latest location tracking technology, which provides the
following features subsequent to subscriber registration and creation of profile with the
service. It enables a customer to track the geographical location of friends and loved ones
wherever they are on the mobile, look for and get to know new friends in the vicinity or send
secret messages to friends anonymously.
Anonymous
SMS Chat
This service enables a customer to chat with friends anonymously on their mobile through
SMS. A customer can chat anonymously, engage in one to one chat or group chat, enter
public chat rooms or create and amend lists of friends and groups.
Mobile Music Mobile Music is an innovative service that enables customers to listen to personalized music
on their mobile. A customer can listen to songs, dedicate songs and make play lists. This
feature enables customers to choose songs from a wide variety ranging from English,
Sinhala and Tamil.Table 2: Key Value Added Services launched in 2009
27Annual Report 2009
International Roaming
Dialogs 3G roaming network expanded to 124
operators in 70 destinations offering high speed
connectivity in all the key roaming markets. In order
to provide the same level of roaming services to the
pre-paid customer base, Dialog expanded CAMEL
pre-paid roaming coverage to 127 operators in
72 destinations. Key partnerships with specialized
roaming service providers allowed Dialog customers
to roam on specially equipped airlines and ships.
Dialogs partnerships with Axiata Group Operating
Companies and Vodafone Group continued to deliver
greater value innovation in the data roaming space.
With the introduction of innovative price capped
data roaming solutions, such as the Daily Unlimited
Data Roaming package with Axiata operators
which allows Dialog roamers to use data services,
while on roaming at near local rates. Similarly 5Mb
Data package was launched in Vodafone partner
markets.
Dialog Tele-Infrastructure (DTI)
DTI, the Companys infrastructure arm continued
to offer state of the art infrastructure as well as
microwave and fiber optic transmission technologies.
The Metro Ethernet project will deliver fiber optic
connectivity to all major locations in the Colombo
metropolis, enabling the Company to deliver super
fast Data speeds that can be leveraged by multiple
businesses to provide consumers with voice, video
conferencing, data and other related services. The
corporate consumers can expect a host of new
services as a direct result of this investment.
The ongoing Metro project has plans to cover a road
network of over 150km by the end of 2010, with
an additional 119km covering Colombo and greater
Colombo.
The National Optical Fiber Project which completed
nearly 180km by end of 2009 delivers fiber optic
connectivity to the southern and central provinces.
Subsidiary Businesses
Dialog Broadband Networks (Pvt) Ltd (DBN)
DBN is a fully owned subsidiary of Dialog Telekom,
which offers a wide range of fixed telecommunictions
services in Sri Lanka. The Company is in the forefront
of ICT infrastructure with a country-wide transmission
and data communication network. Further, DBN
was the first and largest service provider in the
country to deliver high-speed broadband internet
through WiMAX 16.d technology. DBN also provides
fixed wireless telephony services through CDMA
technology.
Broadband Sector Performance
The growth in broadband penetration fell short
of industry and International Telecommunication
Unions (ITU) annual growth estimate of
22-25 per cent for 2009-2011. According to the
Telecommunication Regulatory Commission of
Sri Lanka (TRCSL), internet and email subscriber
growth was 15.6 per cent in 2008, where as the
subscriber base has grown by 2.6 per cent in 2009.
However, improvement in the current economic
conditions and increase in computer penetration is
expected to enhance demand in the future.
Figure 5: Cumulative Internet and e-mail subscribers: Source TRC
Broadband Business Performance Snapshot
The broadband and voice bundled products
(SmartHome and BoxOffice) offered by DBN has
demonstrated a significant growth in 2009. Despite
broadband only subscribers growing marginally,
contribution from the above product portfolio led
to a robust 104 per cent YoY growth in broadband
revenue. SmartHome and BoxOffice customer base
grew by 162 per cent & 64 per cent respectively
during the second half of 2009, significantly
increasing the revenue contribution from broadband
and voice bundled products compared to revenue
from broadband only segment.
Figure 6: Revenue composition of broadband customers
Business & Financial Review
28 Annual Report 2009
Business & Financial Review
Initiatives in 2009
On the backdrop of the success experienced with
BoxOffice (integrated communication solution to
local enterprises), DBN launched SmartHome for
Residential and Small Enterprise customers in the
first quarter of 2009, providing 512Kbps or 1Mbps
downlink broadband speeds and the flexibility of
choosing one or two direct voice lines with an array
of value added services, enabling the customers to
satisfy their diverse communication needs with a
single solution provided through WiMAX technology.
DBN witnessed a robust subscriber growth during the
year consistently generating high Average Revenues
per Customer from the said segment.
During the last quarter of 2009, DBN launched
Child-Safe Broadband Service - yet another first
in Sri Lanka. In addition to basic security features,
with Child-Safe Broadband Services parents can
prevent their children from accessing inappropriate
content on internet.
Hosted Manage Security products were launched
under Enterprise services, which provides the
customer with a wide range of internet security
features, such as Hosted Network Firewall, Hosted
Intrusion Prevention System, Web Antivirus,
Web Content Filtering and Data Leak Prevention.
Customers have the convenience of selecting from
three packages, depending on their requirements.
During the year, WiMAX network was optimized for
better utilization and yield, while DBN took a rational
approach in investing for coverage expansion. In
2009, WiMAX network was extended to Jaffna
peninsula with five base stations covering its main
townships. The extended coverage enabled DBN
to aid the communication needs of the highly
under-serviced northern region.
Fixed Telephony & Data Sector Performance
Sri Lankas fixed telephone sector exhibited signs
of saturation in 2009. Based on TRCSL data the
fixed line customer base of Sri Lanka has declined
marginally by 0.5 per cent during 2009. Along with
newly liberated regions opening up for economic
integration and low fixed line penetration in the
region, the North and East region offers significant
growth opportunities going forward.
Dialog Fixed Telephony and Data Business Performance Snapshot
During 2009, amidst growing competition Dialog
CDMA customer base grew by 3 per cent YoY to over
177,000 active customers. Currently Dialog fixed line
offers the most economical call rates in the country
with the new Rs. 2 per minute tariff scheme made
available to both pre-paid and post-paid customers.
Further, in keeping with Dialogs innovative
strategy, several new Value Added Services such as
E-Channeling were offered to the CDMA customer
base.
In mid 2009, DBN expanded the CDMA network to
Jaffna peninsula with seven base stations covering a
major landmass and thereby substantially increasing
the customer base from the region.
Dialog Television (Pvt) Ltd (DTV)
DTV is a fully owned subsidiary of Dialog Telekom
PLC and currently holds the distinction of being the
single largest direct-to-home (DTH) digital television
service provider in the country. DTV supports
a broad array of international and local content
including CNN, BBC, HBO, Cinemax, AXN, ESPN, Ten
Sports, Discovery Channel, MTV (Music Television)
and Cartoon Network and a wide portfolio of Sri
Lankan television channels.
Pay Tv Sector Performance
Continued economic down turn witnessed during
2009 curtailed the growth in Pay Tv sector. However,
DTV championed the sector as an Inclusive
brand by, catering to the masses at affordable
prices, offering an array of channels ranging from
entertainment to edutainment with the convenience
of easy activation.
Fixed Access Subscribers
767 827883 939
991
1,244
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1,884
2,742
3,446 3,431
Figure 7: Fixed Access Subscribers: Source TRC
29Annual Report 2009
DTV Business Performance
The year 2009 was a tough period for DTV with regard
to acquisition of new subscribers. On the backdrop of
innovative sales and marketing programmes offered,
the subscriber base grew by 22 per cent YoY, where
nearly 150,000 Sri Lankan homes were connected
by end 2009. This has resulted in DTV continuing to
be the undisputed leader in the Pay TV market with
an estimated market share of 83 per cent in 2009.
DTH Pay TV business is characterised by a substantial
fixed cost base comprising of satellite capacity costs
and minimum payments to content providers. The
achievement of a break even volume of subscribers
and operating revenues will ensure the Company is in
a position to override its high fixed costs base, leading
thereafter to a positive bottom line contribution. The
graph below depicts the annual growth in the active
subscriber base and gross additions.
Figure 8: DTV Subscriber Growth
Content, technology and service are the pillars on which the business is built, in 2009 the Company made major strides in each.
Content Portfolio Expansion
DTV channel bouquet grew to 71 channels by end of
2009. The content acquisition strategy employed
during the year resulted in several additions to the
channel bouquet.
Content
Portfolio
New Channels in 2009
Music Zing
Kids Kidsco
Entertainment Fox Crime , Zee Tamil
Local Heritage TV, Vasantham, Learn TV
Table 3: New Channels in 2009
DTV PLAY, is a preview channel for all DTV subscribers
which will enable them to have a taste of all channels
that DTV has at present.
Learn TV - is produced by Dharmavahini Foundation
with the support of the Ministry of Education and the
National Institute of Education. This channel serves
as an education channel for school children from
Grade 9 and beyond.
The channel bouquet is offered to the customers in a
variety of packages.
The Jaffna Peninsula package was introduced
exclusively to North and East Provinces of Sri Lanka from
June 2009 with a Rental of Rs. 500/- (plus taxes).
In addition, sachet channels (the option to subscribe
for individual channels for a minimum period of 30
days) were introduced during the year. This flexibility
is expected to increase ARPU due to customers on
lower packages subscribing for additional channels.
Customers on lower packages also have the
opportunity to activate all channels for Rs. 400/-
(plus taxes) for 7 days known as 7 day pass.
Technology
DTVs services are based on cutting-edge digital
video broadcasting by satellite (DVB-S) using
MPEG 2 technology. Ad Insertion is a project which
was carried out in 2009 to expand the simultaneous
advertisement insertion facility from four channels
to ten channels. This facilitates broadcasting of local
advertisements on foreign channels and is expected
to enhance revenue from advertising.
Value Added Services
DTV continued to provide customers with value added
services and automated selfhelp via multiple access
mediums. An innovative feature was developed to
provide DTV customers the convenience of activating
Set plans, 7 day pass and single channels using the
mobile phone, in the comfort of their homes.
Self Help via #679#
DTV customers could enter #679# from their Dialog
mobile phone and obtain information related to DTV,
access the Electronic Program Guide (EPG), set
reminders for selected programs and activate sachet
channels etc.
IVR Interactive Voice Response
DTV customers could simply dial 456 from their
Dialog mobile phone in order to get bill outstanding
information. This facility has been extended to non-
dialog customers via 0777679679 IVR. In addition,
this service provides routing to Technical Assistance
Centre (TAC) for trouble shooting on DTV error
messages.
Channel activation via SMS
Under this innovative development, the satellite
system, customer care and mobile communication
networks are connected to one platform enabling
the customer to activate a channel of his choice in
just seconds via sms from any mobile connection.
Business & Financial Review
30 Annual Report 2009
(all figures in Rs. Mn. except for ratios)
Financial Year Ended 31
DecemberChange
(%)2009 2008
Net revenue 32,515 33,108 -2
Direct Costs 19,361 17,519 11
Gross Profit 13,154 15,589 -16
Gross Margin (%) 40 47
OPEX 21,584 14,468 49
EBITDA 7,889 8,370 -6
EBITDA Margin (%) 24 25
NPBT (8,785) 138 N/M
NPAT (9,210) (388) N/M
NPAT Margin (%) -28 -1
Table 4: Company Financial PerformanceNote: Comparatives have been restated to conform to changes in the current years presentation N/M: Not Meaningful
Financial Performance
Revenue
The Company recorded revenue of Rs. 32,515 Mn.
for FY 2009, a decrease of 2 per cent YoY,
amidst continued aggressive price competition.
Despite the YoY drop in revenue, improvement in macro economic trends fuelled by the return of peace during the second half of the year helped the Company to register positive revenue gains during Q3 and Q4. International voice termination grew by 57 per cent YoY primarily driven from the increased international communication needs of Sri Lankans in the Northern and Eastern Provinces. The Company also benefited from increased tourist arrivals in Q4 which positively impacted inbound roaming revenues.
Direct CostsTotal Direct costs increased by 11 per cent to Rs. 19,361 Mn. in FY 2009.
Expansion in Direct costs was predominantly due to the rise in Levies by 36 per cent YoY, driven by increased International Termination minutes during the year and increase in telco depreciation by 24 per cent YoY. Network related costs remained flat YoY while Customer related cost declined by 15 per cent YoY. Improvement in the said direct cost lines was mainly due to renegotiation of Annual Maintenance Contracts and favorable terms with suppliers/ vendors on the backdrop of company-wide cost rescaling initiatives carried out during the year.
Business & Financial Review
A Closer Look at Our Financial Performance in 2009
Highlights
Revenue declined marginally by 2 per cent in FY2009. However, the Company witnessed positive revenue
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